Q1-2010 Canadian Real Estate Employment Survey Highlights

Rutherford International’s Employment Survey is designed to provide a first quarter forecast of senior executive opinion on employment expectations within their industry through 2010. This survey is a sub-set of a much larger survey questionnaire, which canvassed opinions on market conditions related to acquisition, disposition and financing of commercial real estate. The survey was directed to the top- and first-tier executives within the Owner/Developer/Lender/Service sectors of Canada’s commercial real estate industry.
Opinion was measured on the following:

1. Employment demand within the industry in 2010;
2. Functional changes likely to take place within respondents’ organizations over 2010;
3. Critical human resource priorities within respondents’ organizations;
4. Economic factors shaping their opinion.

Highlights:

Selected highlights suggest that corporate downsizing has reached its lowest point in the economic cycle with 28% of respondents anticipating expansion of management opportunities, and 56% forecasting growth in staff functions. Employee retention remains top-of-mind with “churn” of non-management and staff functions paralleling the economic recovery. As a result, we anticipate that companies and individuals are less likely to sit tight with the status quo; and will opt for change now as job growth mitigates career risk and size of severance awards.

As for the “Executive Suite,” turnover is anticipated by respondents to be relatively modest – less than 3% of survey respondents forecast further decline in executive positions.
Stated as a “percentage” of survey respondents, employment in the following functions is expected to increase: Administrative functions incorporating Admin, Finance/Accounting and IT - 21% positive response; Corporate roles encompassing Legal, Investor Relations and Analysis - 17%; Value creating positions such as Acquisition/Disposition, Development, Construction and Leasing - 10%; while Operation functions such as Asset and Property Management - 22%.

Respondents were asked to identify the most critical human resource priorities in their organizations for 2010. “Employee Retention and Employee Development” continues to be ranked high priorities by respondent organizations although the importance of “Knowledge Transfer or Tacit Knowledge” declined by 10.2%. Surprisingly, “Bonus Structure” dropped as a priority by 15.4%, while “Pay Equity” rose from 0% in Q3-2009 to15.4% in Q1-2010. Other notable declines in human resource priorities were “Benefits, Motivation and Corporate Values.”

Conclusion
Managing In A Long-Wave Economic Cycle & USA Sovereign Debt

A long wave economic cycle has smooth tops and round bottoms; predictably and inexorably it introduces every generation of real estate professional to the concept of financial euphoria and gravity. We’ve had a series of substantive fiscal catastrophes' within a short time relative to long wave economic theory, and it’s not likely to be over. The world faces a sovereign debt crisis that has the potential to cascade across nations as monetarists run out of options for protecting the real economy. The long-wave is likely to become choppy, leaving the corporate strategist with two human capital options – play out the hand you have with the talent you have; or strengthen your access to unencumbered capital and hire the human capital that knows how to create value in any market.

Top performance today may not be top performance tomorrow. Recently we bench marked the “Key Success Traits” of Canada‘s Top Leasing Performers. The results suggest the make-up of today’s Top Leasing Performer is weighted in personality and relationships, which is likely to be severely tested if faced with more troubling times. It’s evident from this study, that there are certain “Success Factors” one need not consider when hiring a Top Performing leasing executive during a buoyant market. However market forces are fluid, continually effecting supply and demand of space. The timing of shifting market forces is impossible to predict but wise to presume, so defensive hiring against the perceived long-wave economic cycle is an optimum asset strategy.

USA Sovereign Debt – A Generational Opportunity to Create Wealth

The tenor of opinion for the latter half of 2010 is one of “conservative optimism,” but it’s not a time to be meek. Large “private equity” real estate capital pools are flowing in the direction of North America with increasing interest in discounted markets within the United States. The world is less concerned with USA sovereign debt than it is with Japan or Europe. Japan continues to struggle with its political dysfunction; while the concept of the Euro as a reserve currency has imploded along with the founding principles of its Union.

Historically, the world has learned on more than one occasion that Americans are a resilient and highly productive nation and not one to bet against. Capital continues to flow into the United States for reasons unrelated to its status as a reserve currency, but for reasons rooted in the national character of the citizenry. National traits such as optimism, confidence bridging on arrogance, enterprise and individualism underpin the strength of the American greenback. It won't be added stimulus and national indebtedness that will drive the eventual recovery of America's real economy - it will be the application of the nation's character, it's willingness to forgive failed risk, and its rediscovery of national vision.

Canadians whether they like it or not, possess the same genetic code of their cousins to the South however their cultural, political, labour and selected liberal corporate elites smother these inherent strengths by tempering national confidence and celebrating mediocrity. They perpetuate a philosophy of risk aversion, inflict rapacious public sector entitlements upon the "real economy," and foster contractual featherbedding that's become part of the fabric in Canada's social and corporate practices. Collectivism trumps individual spirit, entitlement supersedes merit - historically, it's been a morass of festering oligarchic mediocrity that's been content with a parochial vision of the future.

By and large, this is not the case within Canada's commercial real estate community. Many of the Scion's of Canada's development elite are the progeny of forebears that ventured beyond their homeland; it's in their genes to think beyond regionalism. The Canadian real estate community has been a bastion for entrepreneurialism; it has a proud history for reaching beyond its national borders. Providence has not always been kind, but the legacy of some of Canada's iconic developers dot the central business districts of major global cities. The accomplishments of Canada's "Builders" and financiers is a testament to Canada's individualism and ability to succeed internationally; this out-ward focus of vision is the well-spring that lies deep in Canada's genetic national code waiting for liberation.

The United States beckons with the continued de-leveraging of it's commercial assets. Canadian owner/developers, investment advisers, pension funds and bankers should begin preparing for what is perceived by many savvy real estate professionals as a generational opportunity to create wealth in the United States. Canada's commercial real estate community is well placed to benefit from these capital flows into North America; especially with individuals possessing US market knowledge returning to Canada.

How does one take advantage of this opportunity?

Not unlike the visionary builders of the 1970's and 80's and the Acquisitor's of the 90's. It's a matter of aggregating the human capital into a single cohesive team where the complimentary and collaborative 'grey matter' is capable of recognizing opportunity when others see only problems. This alchemy of identifying and blending "high performing" minds is difficult to achieve - success is a combination of confidence in vision, leadership, constant refinement and serendipity. It requires careful research, thorough investigation, application of behavioral science and applied understanding of the connectedness within human relationships.

We welcome the opportunity of assisting you in this effort.

To receive a copy of the Employment Survey results, please contact Forbes Rutherford at 416-250-6300 Ext. 227 , by email at forbes@rutherfordinternational.com

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Global Real Estate Executive - Q1/2010 Employment Status Survey

Q1/2010 Global Real Estate Executive Employment Status Survey
Rutherford International (http://www.rutherfordinternational.com/) analyzed approximately 170,000 commercial real estate and construction/design executives within its data base to determine what percentage had undergone some sort of material change in their status over the last 18 months. This data base analysis spanned four major English speaking countries: United States, Canada, United Kingdom and Australia.The analysis did not include staff and middle-management positions, nor real estate professionals in financial services or investment management. We discovered that approximately 42 percent of this analyzed executive grouping had undergone some degree of change in their current status. A “change in material status” means that they are no longer in their current position; however one should not necessarily construe from this change in status that the executive is not gainfully employed elsewhere. Even taking into account normal data base attrition, the percentage of changes reported would suggest that at a global level, no quarter or safe haven within the real estate executive community was to be had – the job loss within this sector exceeds that of countrywide averages.

The percentage changes (all in the negative) are quite astounding; and frustratingly annoying to behold when one considers that the “echo” cohort of our post-war baby boom generation is at an age where they are choosing life long careers. The Canadian commercial real estate industry lost a generation of youth after the early nineties real estate recession; is it feasible the global industry could loose a large segment of its echo cohort this time around as well?

I’ve been involved in real estate executive search since 1986; prior to the search profession, I practiced real estate development in Canada and property investment overseas. Rutherford International has experienced all the market cycles, and is intimately aware of the economic machinations associated with oil price shocks, double digit interest rates, “loan to own” commercial lending, tax driven priming of industry sectors, economic recessions and industry specific depressions. Real estate is the first industry sector to be cooled by a country’s monetary policy; and the last to be warmed by it.

As a passionate observer of the industry, and given the reported percentages; Rutherford International humbly imparts a bit of advice to individuals concerned over their security, and/or their choice of real estate as a career. We also offer firms contemplating future organizational plans and pursuit of opportunities some advice as well.

Advice to Individuals:
Real estate is cyclical and dynamic; to choose a career in real estate, or resolve to remain in it, one should be comfortable with the concept of living with uncertainty. A fundamental consideration for choosing a career in real estate is to understand its structure and economic role in our lives. In business theoretical terms, commercial real estate is a “complex adaptive system;” meaning it can move to the brink of chaos before new patterns emerge and new forms of organizations take place. The framework for doing business today may not exist tomorrow; uncertainty is part of the natural order of a market economy in which real estate is a firm adherent.There is little doubt that at a global level, the industry is undergoing a purging of phantom wealth and a systemic “Resetting” of values. One might relate it to a metaphorical fiscal neutron bomb that has wiped away real and perceived investment values but left the physical assets standing. Short of one’s own entrepreneurial and deal-driven optimism – traits that true real estate executives are in no short supply of; practitioners need to take comfort in knowing that although ownership positions melt away, the assets remain and require management; tenants contract and shift to lower cost facilities but need service and amenities; vacancy needs to be leased, projects completed – asset and project value erosion must be mitigated. To that end, you can choose to become collateral damage or be part of a creative response in preparation for a recovery.

Advice to Companies:
There are few times in business history where a single sector is able to deliver up a smorgasbord of talent across all functional roles in multi-national markets. Now is the time to identify competency gaps within your organization through the lens of performance and psychometric based assessments, and put in place a strategy to upgrade your team; and/or align the firm with joint venture expertise outside of your company’s traditional boundaries.

It’s a simple analysis, however if one subscribes to the 80/20 rule meaning 80% percent of your corporate wealth is generated by 20% or your organization; then one might assume an industry undergoing dislocation of talent for no other reason than “macro economic” implosion should have a substantial ‘selection ratio’ of talent available to you that would immediately benefit any hiring organization.All real estate is local – but the reach of associations, the make-up of trans-border acquisition, development and lending teams, the seamlessness of technology platforms can ease one’s efforts to go global. The cost-of-entry, and the potential for non-parochial SME’s to play in the same markets as the larger yet less nimble sovereign and institutional capital pools will constantly improve as real estate professionals rebound from this global recession.

Nimble companies should use this time to improve the quality of their management and executive teams; and/or explore strategic alliances with competent market savvy yet under-employed entrepreneurial executives outside of their traditional geographical boundaries.

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